India To Outperform Emerging Markets In 2018, Morgan Stanley Says

India, one of Asia’s best-performing stock market this year, will outperform emerging markets in 2018, according to a Morgan Stanley report. This despite absolute returns slowing down due to moderating global equity returns, the global brokerage house said.

Morgan Stanley revised S&P BSE benchmark Sensex’s target for December 2018 to 35,700 from 34,000 given in June 2018. Currently, the Sensex is trading around 33,661 levels.

Improving capital expenditure, fiscal spending, supportive global growth and buoyancy in consumer sentiment provide a strong support system for India’s growth in 2018.

Moreover, a stronger free cash-flow, an end to recession in balance sheets and corporate earnings sets the stage for an improvement in private capital expenditure, the report said.

The brokerage firm said street is not pricing in a multi-year growth cycle, which would eventually imply a meaningful upside potential to Indian equities over the next 3-5 years.

Hurdles To Economy

Supply shock to oil, drag from job losses in small firms because of the implementation of Goods and Services Tax, and the potential negative effects if government links Aadhaar to property ownership are among the few risks to the economy.

Going forward, Morgan Stanley said that India’s relative short yields are suggesting an out-performance for India. Election calendar in India is getting thicker which is usually a source of volatility, the report said.